MEANING OF RELATED PARTY

Related Party definition is codified in Accounting Standard and Companies Act, 2013 but both definitions have different purposes because, under the Companies Act, Board or Shareholder approval when the respective provisions are triggered and reporting of the same in AOC-2 whereas there is no such approval required under the Accounting Standard.

Definition under section 2(76) of the Companies Act, 2013:

"Related party" with reference to a company means:-

(i) a director or his wife;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager [or his relative] is a member or director;

(v) a public company in which a director or manager is a director [and holds] along with his relative, more than 2% of its paid-up share capital

(vi) any body corporate whose Board of directors, managing director, or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person under whose advice, direction or instruction a director or manager is accustomed to act:

Provided that nothing in sub-clause (vi) and (vii) shall apply to the advice, directions or instruction given in a professional capacity;

whenever I read this sub clause I believe that if director is acting upon someone's advice then he is violating the provision of section 166(3) which states that "a director of a company shall excercise his duties with due and reasonable care skill and diligence and shall excercise independent judgement."

(viii) any body corporate which is -

(A) a holding, subsidiary or an associate company of such company;

(B) a subsidiary of a holding company to which it is also a subsidiary; or

(C) an investing company or venturer of the company

Explanation - For the purpose of this clause, "the investing company or the venturer of a company" means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.

(ix) such other person as may be prescribed

For the purpose of clause (ix), a director  [other than an Independent director] or KMP of the holding company or his relative with reference of a company, shall be deemed to be a related part